Review of behavioral economics models of the altruistic crowding-out effect from monetary incentives

Abstract

The altruistic crowding-out effect is a decrease of prosocial behavior due to monetary incentives or material rewards that intend to increase an extrinsic motivation for the behavior. The decrease in a behavior by increasing a motivation for that behavior, seems irrational, but behavioral economists presented a dozen different models to explain this crowding-out effect. In these models, the decrease in prosocial behavior is rational in the sense that agents maximize their expected utility. All the models assume that people have utility functions that represent their preferences and motivations. This review clarifies different kinds of motivations, rewards, incentives, and crowding-out effects, presents 13 behavioral economics models, classifies them in five types of models, discusses subtle nuances of the models, summarizes the different predictions of the different models, and provides an overview of the empirical support of the models. The main take-away is that the crowding-out effect could not only be explained in terms of rational, utility-maximizing behavior, but could be done so in many (at least 13) different ways. This review can be used to improve empirical validation of the models and to gain insights in the specific contexts in which crowding-out occurs.